"If you think about all the planes that are available as being puppies in a litter, the Super Hornet is the runt." US aviation analyst James Stevenson
For more than 30 years Australia has rested its security on the seemingly ageless wings of its F-111 fighter fleet.
But in aviation circles these days there are doubts and rumblings. Some experts fear Australia is set to give away its crucial air superiority in the region.
The reason, they claim, is that decision-makers have made the wrong choices about the planes that will replace the F-111s.
Critics fix their sights on the US-made F/18-A Super Hornet. Australia is the only country outside the US to have bought the Super Hornet – 24 of them.
"I cannot believe that we would waste $6.6 billion of the taxpayers' money on an aeroplane that has no practical use against any modern new generation fighter coming into our arc of interest to our north," declares a former RAAF commander.
A growing squadron of critics - including a recent senior Defence insider who now breaks his silence to Four Corners - claim the still-to-be-delivered Super Hornets will be no match for the cheaper, faster, Russian-made Sukhoi fighters bought by Indonesia, Malaysia and China.
Four Corners traces the chain of multi-billion dollar aircraft deals that are beginning to spark concerns about the nation's future defence capability.
Andrew Fowler's report tells how in 2002 the world's top aircraft makers dug in for a long, exhaustive examination by Australian defence experts who were after a plane to take over from the F-111s. It would be worth it, the nine companies reckoned – after all, billions of dollars were up for grabs. But eight of them were reeling when it was suddenly announced that Australia would spend $16 billion buying up to 100 Joint Strike Fighters from America’s Lockheed Martin. The JSF existed only on paper at that time but was due to be delivered by 2014.
Fears soon emerged that the JSF could be late. Defence brass gave public assurances that the F-111s could be kept flying to cover any gap in air defence. But behind closed doors new doubts were being raised about the F-111s' longevity – and then the news was sprung that Australia would spend another $6.6 billion buying the Super Hornets to fill the gap.
Government officials and pilots who have flown the Super Hornet insist that the plane is being unfairly and dangerously underestimated. It’s stealthy and nimble, and any other plane that gets into a dogfight with it is in for "a very rude shock" says group captain Steve Roberton.
But these assurances carry little payload with specialists who say national security is being put at risk. Four Corners evaluates the process leading to these multi-billion dollar decisions. Will they leave Australia "Flying Blind"? Four Corners, 8.30 pm Monday 29 October.
This program will be repeated about 11.35 pm Tuesday 30 October; also on ABC2 at 9.30 pm Wednesday and 8 am Thursday.
Liberal defence ministers Robert Hill and then in March 2006 Brandon Nelson,decidet without tender,to buy the inferior F/18-A Super Hornet from the US (Lockheed)and cancel all other presentations of 9 other major tenders.
Critics fix their sights on the US-made F/18-A Super Hornet. Australia is the only country outside the US to have bought the Super Hornet – 24 of them.
"I cannot believe that we would waste $6.6 billion of the taxpayers' money on an aeroplane that has no practical use against any modern new generation fighter coming into our arc of interest to our north," declares a former RAAF commander.
The still-to-be-delivered Super Hornets will be no match for the cheaper, faster, Russian-made Sukhoi fighters bought by Indonesia, Malaysia and China.
Anyone who knows the performance of the Sukhoi fighters, realizes that they will fly faster ,further,higher,with a higher load then the Super Hornets ever will.
The Sukhoi fighters is half the price of the Hornet, but twice as good as the Hornet.
This is another major stuff up by the Australian Government and the minister for defence,Brendon Nelson.
He bought us a white elephant,noone else wants,not even the US navy themselves!
What a stuff up by this incompetent government! whatever happened to free trade?This was all set up between Howard and Bush!What a joke,a total stuff up!
from left to right: 1) DICK dreams of shooting Ducks and invading countries like Afghanistan,Iraq,Syria,Lebanon and lately Iran. 2) BUSHLER dreams of WORLD WAR III and a NEW ALL AMERICAN WORLD ORDER to last the next 1000 YEARS. 3) Bean Howard, Al-Quaida Terrorist Suspect is about to be deported to Guantanamo Bay for initial interrogation.
The fall in the USD is almost entirely due to the punishing US Trade deficit,which is now close to 800 Billion USD in 2007,as I post this.Add to this the prohibitive cost of about 500 billion USD for the failed war in Iraq , not to mention the unmessurable cost of human suffering of civilians and collateral damage,injuries and soldiers suffering loss of life or limb and countless disabilities from post traumatic stress disorders.
The cost to the US economy is enormous. It is my believe,that america as a nation has been in a recession since 2003,when disastrous decision was taken to invade Iraq.
Since then,the US economy and with it the world economy has struggled under enormous financial costs and burdens , wasted on destruction and warfare.
Meanwhile the price of oil is sky rocketing and the United States of America is close to being Bankrupt.
If the USA was a corporation,you would put it into receivership.Technically,the USA is in receivership.
I cannot see a change or recovery for the US Dollar, nor for the United States,unless the US stops wasting its funds on useless and futile warfare activities ,such as we have seen since 2003.
The infrastructure in the US,Medicade,social security and funding for Health and education is sadly lacking,while military spending has gone up tenfold!
Just look, at New Orleans,the Infrastructure in the Gulf, the Fires in California,the poverty of many americans suffering from the subprime housing crises amongst the obscenely outrageous hedge fund orgies who have lost any sense of value for money.
Unless the Iraq problem is resolved soon,I can not see any recovery for the USA anytime soon.
What happens if the USD falls further in value and the price of oil climbs even higher ?
It is my believe that the US is in recession right now,and it seems to only get worse.
Can Ben Bernanke really savely lower the US Interest Rate by another .25basis points tomorrow ?
I do not really think it is a good Idea. Lowering the US rates even more will devalue the US Dollar even more and will make imported goods ever more expensive for americans.If americans stop buying imported goods, it could cause a world wide recession.
After all,where does China sell most of their goods ? So NO,I do not think that Markets will get another Rate Cut tomorrow,simply because it would be counter productive!
What we need is a stronger US Dollar and a lower price of OIL,which is hurting producers!
If we do not see the expected rate rise tomorrow,Markets will be disappointed and there could be a slight downturn in the next couple of days,starting tonight in the US.
But in the long run it will be better for the Markets and the US economy,NOT to cut the Interest rates this time, but leave rates on hold and wait and see.
How can the US expect another rate cut,when their CPI is running at 3.6% in the USA?
3.6% shows that the USA inflationary costs of producing goods and services is very high,even though the US Dollar is at a 20 year low when compared with the UK pound or Aussie Dollar.Then there is the Euro.One US Dollar is 1.44 Euro. One Euro is only about 0.69 US Dollars!
Think about it...will the Euro soon replace the USD as benchmark currency?
Here is Australia ,our YEAR TO YEARCPI is running at a low 1.9% right now,but our "Governor" of the RBA utters idiotic remarks of getting trigger happy yet again at the next RBA meeting Nov.6.
Australian Rates are at an 11 year high of an outrageous 6.5% !Courtesy of the commodities boom.
But outside the mining industry,average Australians are struggling.They are being told:"they never had it sooo good!" by an increasingly out of touch and right wing radical government!(my opinion)
How can the aussie RBA screw rates even tighter,when the CPI is only 1.9% ?
This will make the AUD even higher in value,and life will get impossible for exporters and all basemetals produced by BHP and RIO will get even more expensive,which will drive Inflation even higher!!
This leads me to conclude,that the Governor of the RBA is a total wanker and an out of touch arrogant numbscull!
How do these Idiots like Glen Stevens,Howard or Bush ever get to stay in their Job for more then 5 Minutes is beyond me!I seem to be surrounded by Idiots,and it is therefor no wonder,that year by year I become more doubtful.cynical and sardonic,when it comes to my fellow "inmates" in this circus we call "life".
Help - I am surrounded by clowns! Must be Halloween.... G
Sophia Magdalena Scholl (9 May 1921 – 22 February 1943) was a member of the White Rose non-violent resistance movement during the Nazi regime in Germany. She was arrested on 18 February 1943, convicted of treason four days later, and executed by guillotine a few hours after that.
* The real damage is done by those millions who want to "survive." The honest men who just want to be left in peace. Those who don't want their little lives disturbed by anything bigger than themselves. Those with no sides and no causes. Those who won't take measure of their own strength, for fear of antagonizing their own weakness. Those who don't like to make waves — or enemies. Those for whom freedom, honor, truth, and principles are only literature. Those who live small, mate small, die small. It's the reductionist approach to life: if you keep it small, you'll keep it under control. If you don't make any noise, the bogeyman won't find you. But it's all an illusion, because they die too, those people who roll up their spirits into tiny little balls so as to be safe. Safe?! From what? Life is always on the edge of death; narrow streets lead to the same place as wide avenues, and a little candle burns itself out just like a flaming torch does. I choose my own way to burn.(Sophia Magdalena Scholl)
Some Facts worth knowing about:-(NO,I won't let you forget it!)
When John Howard was the Treasurer in April 1982 interest rates hit an all time high of 22 %
Interest rates reached a peak of 22 per cent in April 1982 - when the Liberal Party was in power, and John Howard was the Treasurer. Date Interest Rate 05-Apr-1982 20.85% 06-Apr-1982 21.45% 07-Apr-1982 21.88% 08-Apr-1982 22.00% 13-Apr-1982 21.95% 14-Apr-1982 21.75% 15-Apr-1982 21.55%
90 day bank bills (Source: Reserve Bank of Australia, Bulletin Statistical Table F1)
John Howard and the Liberals want to talk about 'past records' on interest rates but they do NOT want you to know about their own record.
Wrongfully detained for 5 years - the tragic story of Tony Tran Australian Broadcasting Corporation Broadcast: 12/11/2007 Reporter: Margot O'Neill
Husband and father Tony Tran says he was wrongfully locked up for five and a half years, thanks to an immigration bungle.
Transcript DANA ROBERTSON: You're probably familiar with the names Cornelia Rau and Vivian Solon, both victims of immigration scandals involving illegal detention or deportation. Tonight another such case has come to light.
It 's difficult to imagine the nightmare endured by Tony Tran.
A young husband and father, he was wrongfully locked-up for five and a half years; he was separated from his wife, who went back overseas and now can't be found; he lost his home and his livelihood and his Australian-born son was put into foster care while an attempt was made to deport the boy without his father's knowledge.
You may think, well, it can't get worse than that.
But while in detention Tony Tran was stabbed and bashed by another inmate and now suffers a range of chronic health problems.
Despite all this the Government has never apologised. Indeed, Tony Tran and his son still face possible deportation, although they're stateless with no citizenship rights anywhere else in the world.
So tonight we ask: why is his case - and that of his nine-year-old son - being allowed to drag on? Questions neither side of politics appear anxious to comment on in an election campaign.
Tony Tran told his story exclusively to Lateline's Margot O'Neill.
Fortune's senior editor-at-large Geoff Colvin takes a closer look at the greenback's spiraling decline. November 13 2007: 4:04 AM EST
(Fortune Magazine) -- Things do tend to go to hell all at once, so maybe it should be no surprise that the dollar tanked as the subprime mess was getting rapidly worse and stock markets were whipsawing, mostly downward. The dollar's fate is especially worrisome because of its historic role as the world's reserve currency and its obvious importance to the world's largest economy. In today's interconnected global markets the dollar's movements are part cause, part effect - but on net it's hard to see the dollar getting much stronger anytime soon.
The forces behind the dollar's weakening have been building for years but didn't have much effect until recently. Most fundamentally, we Americans have been living beyond our means, buying more from the rest of the world than the world buys from us (that's the trade deficit); to do that, we have to give foreigners claims on our assets in the form of government bonds and corporate bonds, or sometimes the assets themselves. A country as rich as America can do that for a long time, but eventually the world ends up holding more dollars than there is dollar-denominated stuff they want to buy, so they start offloading dollars. They also worry that any country with loads of debt--even the U.S.--may be tempted to inflate its currency, and that fear reduces its value.
Since the U.S. has been running huge trade deficits the past several years--about $700 billion this year--the stage has long been set for the dollar to drop. What shoved it over the edge was the subprime mess and worries about a U.S. economic downturn. If the economy looks to be slowing down, investors bail out of U.S. assets and turn to investments that must be bought with other currencies. When the Fed tries to perk up the economy by cutting interest rates, as it has done twice recently, it makes the dollar even less attractive because investors can get better rates in other currencies, such as the euro.
What makes investors really nervous is that the trend could become self-reinforcing. A Chinese government official sparked a particularly sharp selloff of the dollar when he said his government would be moving its reserves out of weak currencies and into strong ones--goodbye, dollar; hello, euro. Since China holds more than $1 trillion, its actions could move markets, pushing the dollar down further, prompting dollar holders to shift out of it further, and so on.
Even if we avoid that scenario, more dollar weakness is probably ahead, at least relative to China's yuan and other currencies of developing nations. As Alan Greenspan points out, when their living standards are rising faster than ours, their currencies will probably appreciate vs. ours. Remember, he says, that the Japanese yen was once 300 to the dollar and eventually strengthened to below 100 (it's now around 113). The trend continues: In just the past year the dollar has weakened 13% vs. the Indian rupee and 11% vs. the Colombian peso, for example.
By the way, Warren Buffett told us all this would happen. In mid 2002, for the first time in his life, he began buying foreign currencies, thus betting against the dollar. He explained his reasons most extensively in a FORTUNE article he wrote (Nov. 10, 2003; see fortune.com). The main factor he cited, the trade deficit, is much worse now. For a year or two after the article, his bet seemed to be a loser. But now, as usual, he looks prescient.
US Democrats say the wars are costing the US too much The US wars in Iraq and Afghanistan are costing nearly double the amount previously thought, according to a report set to be released by Congress.
Democrats say the wars have cost $1.5 trillion - almost twice the requested $804bn (£402bn) - because of "hidden costs", the Washington Post reports.
That figure would amount to $20,000 for an average US family of four, it adds.
And some of the figures cited in the report were labelled speculative by funding experts, the Post says.
Among the indicators contributing to the higher cost of the conflicts are higher oil costs and payments to war veterans.
'Lost earnings'
The report is expected to be presented to Congress later on Tuesday.
The Democratic authors included the costs of treating wounded veterans and mounting interest payments on money borrowed to finance the wars.
The report calculates that the campaigns in Iraq and Afghanistan have cost the average US family of four more than $20,000.
It adds that the amount could rise to $46,300 over the next decade, the Washington Post says.
The committee's Democrats estimate that treating veterans could add more than $30bn to war costs, including disability payments and lost earnings for veterans affected by post-traumatic stress disorder.
Republicans have not yet commented officially on the report.
Australia Keeps Key Interest Rate Unchanged at 6.75% (Update1)
By Jacob Greber and Victoria Batchelor
Dec. 5 (Bloomberg) -- Australia's central bank left its benchmark interest rate unchanged as it waits to see if the U.S. housing recession and credit-market turmoil will hurt growth.
Governor Glenn Stevens and his board left the overnight cash rate target at an 11-year high of 6.75 percent in Sydney today, as forecast by all 27 economists surveyed by Bloomberg News. The rate was raised last month and in August.
Australia has so far weathered the U.S. slowdown and financial-market ructions as consumer spending increases and exporters sell more to China and Europe. Accelerating inflation, driven by the lowest jobless rate in 33 years and rising wages, may force the central bank to raise borrowing costs in the first quarter of next year.
``One of the factors keeping them on hold is the uncertainty on global markets,'' said Tony Pearson, a Melbourne-based economist at Australia & New Zealand Banking Group Ltd. ``If it wasn't for the global financial market concerns, and uncertainty about just how severe the fallout from that will be, the case for further rate action is clear.''
Australia's dollar fell to 87.04 U.S. cents at 9:38 a.m. in Sydney from 87.40 cents before the decision was announced. The yield on the 10-year government bond fell 1 basis point to 6 percent. A basis point is 0.01 percentage point.
Economists expect the European Central Bank to leave its main interest rate unchanged this week at 4 percent and the Reserve Bank of New Zealand to keep its benchmark at 8.25 percent tomorrow, separate Bloomberg News surveys showed. The Bank of Canada yesterday unexpectedly cut its key rate by a quarter point to 4.25 percent, citing ``global financial-market difficulties'' and an ``increased risk'' to exports.
First Statement
The Reserve Bank of Australia for the first time today released a statement explaining its decision when rates are left unchanged.
``Recent information continues to indicate strength in demand and output in Australia, with the economy having relatively little surplus capacity,'' Assistant Governor Malcolm Edey said in the statement.
Meanwhile, trade figures released by the Bureau of Statistics also reveal a nation struggling to balance the books. The monthly trade deficit hit a record high of almost $3 billion in October - the 67th deficit in a row and the longest run of red ink on record.
The deficit, exceeding levels that sparked fears of a "banana republic" in the 1980s, comes despite a once-in-a-generation boom in commodity prices.
Economists say the cause is a soaring dollar creating headwinds for exporters and encouraging more imports, the drought taking a toll on rural exports, and capacity constraints and infrastructure bottlenecks impeding the flow of mineral exports.
Meanwhile a survey by CommSec found retailers have not passed on the full savings from a stronger dollar. It has risen 80 per cent over the past six years, but prices of imported goods have only fallen 20 per cent.
"Consumers have every right to feel hard done by," said the CommSec economist Martin Arnold. "If businesses had passed on more of the currency benefits to consumers, inflation would be far lower, and so arguably would be interest rates." http://www.smh.com.au/news/national/inflation-soars-for-rudd/2007/12/03/11965305 76281.html}}
the way I read this market: last week we had a sharp bounce off the lower support line in most markets..this week will show,if those supports will hold and we have seen the end of the second correction,or will we see more pain and the beginning of a bear market and longer lasting down trend.
Much depends on the US and are they going into a full blown recession,can they recover from the subprime drag from here ? Why is the libor rate between the banks so high ?Can the Fed fix AMR rates to prevent more foreclosures?Plenty of factors,that will determine where world markets are heading.
interesting times ahead...can Asia save us ? What will happen in the middle east ?
also: to Peter Castello and John Howard I like to say: 67 Trade deficits in a row, while in the midst of the biggest economic boom Australia and the World has ever seen, is sheer economic INCOMPETENCE!
No Infrastructure built and lack of a skilled Workforce, cruel spending cuts on education,health,agedcare,childcare, Dental Care,the Arts(the demise of our Film Industry)etc, just shows,the Liberals and the John Howard Government were sleeping on the Job and 11 years was wasted talking mostly bullshit!
So good riddance John Howard and Peter Castello. you left Australia and its economy in a mess ,caused by your lies and sheer incompetence!
Australia Establishes National Climate-Change Research Center
By Simeon Bennett
Dec. 5 (Bloomberg) -- Australia said it opened a climate- change research center two days after the nation's newly elected government ratified the Kyoto Protocol aimed at reducing emissions of greenhouse gases blamed for global warming.
The Centre for Australian Weather and Climate Research will study weather patterns, ocean levels, seasonal changes and water management in a collaboration between the Bureau of Meteorology and the Commonwealth Scientific and Industrial Research Organisation, the agencies said in an e-mailed statement today.
Australia is struggling to recover from its worst drought in 100 years, and in June floods left seven people dead and stopped shipments from Newcastle, the world's biggest coal- export harbor. Kevin Rudd, Australia's newly elected Prime Minister, ratified the Kyoto Protocol on Dec. 3 -- the Labor party leader's first day in government -- reversing the policy of ousted Prime Minister John Howard.
Australia's coal-fueled power stations produce more greenhouse gases per capita than any other nation, a study by the Washington-based Center for Global Development found last month. Delegates, lawmakers and scientists from 187 countries are gathering this week on the Indonesian island of Bali for talks to replace a global warming treaty that expires in 2012.
Australia Cuts Commodity Earnings Forecast on Drought (Update1)
By Madelene Pearson and Gemma Daley
Dec. 6 (Bloomberg) -- Australia, the world's biggest shipper of coal, iron ore and wool cut its forecast for earnings from commodity exports for a second time because of drought and gains in the local currency.
Sales of commodities may reach A$140.5 billion ($122.3 billion) in the 12 months ending June 30, the Australian Bureau of Agricultural and Resource Economics said today in a statement. That compares with last year's A$139.4 billion and a September estimate of A$144.7 billion.
Australia's currency has gained 10 percent against the dollar this year, trimming earnings for mining companies such as Zinifex Ltd. The nation's worst drought on record has cut farm production from wheat to barley and cotton.
The forecast cut ``reflects the effects of the drought and strong Australian dollar,'' the bureau said in a statement.
The European Central Bank (ECB) has left interest rates unchanged at 4%, in line with analysts' expectations. Eurozone inflation has risen in recent months, pressuring the bank to keep rates at current levels, despite slow growth and global market turbulence.Official data showed that inflation in the 13-nation eurozone hit 3% in November year-on-year, marking its highest level in more than six years.
Earlier, interest rates in the UK were cut to 5.5% from 5.75%.
The US Federal Reserve is expected to cut interest rates next week.
Finance ministers in the eurozone have voiced their concern about the euro's strength, which is supported by comparatively high European rates.
German finance minister Peer Steinbrueck has expressed his worries about the currency's strength, which makes European exports expensive to consumers outside the eurozone.
And Italy's deputy economy minister Vicenzo Visco said it would be "suicide" not to cut rates.
Before the credit crunch hit global markets in the summer, the ECB had been expected to raise rates to 4.5% by the end of the year, but the consensus is now for them to remain unchanged until the end of the year.
An "icon" crop-dusting pilot is believed to have died after his plane crashed into a lake in NSW today. The yellow plane had been scooping water from Lake Liddel near the New England Highway near Muswellbrook about 9.30am when it crashed into the lake, said Harley McKillop from Pay's Air Service."What can I tell you - we've crashed into Lake Liddel ... the pilot's in the wreckage and they haven't retrieved the pilot or the wreckage [from the lake],'' Mr McKillop said."This is a huge loss for us - it's our livelihood.''Despite earlier reports that there had been up to three people in the plane, Mr McKillop said only the pilot had been aboard the plane when it crashed.
The plane, an Airtractor AT-802, can only fit one person, he said.
The company, which operates a fire-bombing service, had been testing new equipment when the crash occurred, Mr McKillop said.However, it was not yet clear whether the equipment being tested had contributed to the crash, he said.Staff from the company had been at ground-level at the lake when the plane crashed, Mr McKillop said.They rang triple-000 as soon as the crash occurred, he said.
Scone Aero Club president Neville Partridge said the pilot of the doomed plane was Col Pay, an experienced pilot and crop-duster from Scone.
"He's an absolute icon in the crop-dusting industry,'' he said."He's got a squillion hours up - he's been doing it for so long."We're all pretty shattered.''
Mr Pay was also one of the country's best known collectors of warbirds, he said.He had once owned the only flying Spitfire in Australia, as well as a Mustang, Tiger Moth and a Kittyhawk.He was well-known for flying the warbirds at airshows, including his home-town's Scone Airshow.
Col expanded his interest in warbird aircraft with the purchase of a Spitfire Mk.VIII from the estate of the late Sid Marshall. This aircraft required a complete rebuild and many overseas commentators believed that the task could not be performed in this country. The aircraft’s first flight was the crowning achievement of the warbird movement in Australia up until that date, and its operation by Col between 1985 and 2000 brought this legend to thousands of enthusiasts and veterans alike. Col maintained his association with the Spitfire following its sale to the Temora Aviation Museum and flew it at Temora whenever the opportunity arose. Other wartime fighters and trainers became part of his collection including Australia’s first airworthy P-40 Kittyhawk which again emerged from his workshops as one of the best examples of its type anywhere in the world. At the time of the P-40’s first flight, Col’s collection boasted an example of each of the most significant fighter aircraft operated by the RAAF during the Second World War. Through Col’s efforts, Scone became a Mecca for aircraft enthusiasts and this was enhanced through the bi-annual “Warbirds over Scone” air shows that brought spectators from every state and overseas.
Australia Dollar Falls as Investors Sell Higher-Yielding Assets
By Chris Young Enlarge Image/Details
Dec. 14 (Bloomberg) -- The Australian dollar fell as investors sold higher-yielding assets on concern that credit- market losses will slow global economic growth.
The currency declined for a third day as the rate Australian banks charge each other for loans rose to the highest in more than a decade, suggesting the cash injection by central banks won't be enough to revive lending. Credit-market turmoil has hurt the Australian dollar as investors became less inclined to buy the nation's stocks and bonds with money borrowed from Japan in so-called carry trades.
``There will be visible signs that financial market stresses will have real economic impact, so this will weigh on'' Australia's dollar, said David Mozina, senior currency strategist in New York at Lehman Brothers Holdings Inc., the fourth-biggest U.S. securities firm. ``We're negative on the Australian dollar at these sort of levels medium term.''
The Australian dollar declined to 87.77 U.S. cents as of 6 p.m. in Sydney, from 88.03 cents in late Asian trading yesterday. It traded at 87.80 a week ago in New York.
Caltex Australia Ltd., the nation's biggest oil refiner, cut its full-year profit forecast by as much as 13 percent because of a decline in the Australian dollar. The currency has slid 6.6 percent since touching a 23-year high of 94 cents on Nov. 8.
Central banks in the U.S., U.K., Canada, Switzerland and the euro region agreed on Dec. 12 to a coordinated effort to promote lending and restore confidence in money markets. Policy makers are reacting to more than $66 billion of losses tied to U.S. subprime mortgage defaults from banks this year.
Carry Trades
Australia's three-month bank bill swap rate climbed 14 basis points to 7.51 percent, the highest since July 1996, according to data compiled by Bloomberg. The rate, which banks use to determine yields on variable-rate loans, has increased from 7.09 percent a month ago.
Australia's currency is a favorite of carry trades because the nation's overnight cash rate target is at an 11-year high of 6.75 percent compared with Japan's 0.5 percent benchmark rate.
In carry trades, investors get funds in a country with low borrowing costs and buy assets where interest rates are higher, earning the difference between the two. The risk is that exchange-rate swings erode profits.
``The carry trade will be quiet for the next one or two weeks,'' said Peter Pontikis, treasury strategist at Suncorp- Metway Ltd. in Brisbane. ``I'd expect a two or three cent decline in'' the Australian dollar by the New Year.
Metals Decline
Australia's dollar also weakened on speculation inflation in the U.S. will limit the Fed's scope to reduce interest rates further and keep the economy out of recession. The U.S. is Australia's third-biggest export market.
The London Metal Exchange Index, which measures the prices of six metals, fell 2.5 percent. Australia's dollar is typically influenced by raw materials prices because the revenue they generate accounts for about 17 percent of Australia's economy.
Australia's dollar has risen 2.7 percent against the U.S. currency since Sept. 18 when the Fed first cut its target overnight lending rate between banks to free up capital as banks became reluctant to lend. The Fed lowered the rate a quarter- percentage point to 4.25 percent on Dec. 11, the third reduction this year.
Australia's dollar fell after the U.S. Commerce Department reported retail sales rose 1.2 percent in November, twice as much as economists expected. The Labor Department said prices paid to U.S. producers climbed the most in 34 years. A U.S. government report today may show consumer price increases accelerated last month, according to a Bloomberg News survey.
``The U.S. dollar has had broad-based strength so the Aussie has been caught up in that,'' Lehman's Mozina said, referring to the currency by its nickname. ``It's a very testing environment for the currency that is likely to unfold over the next three to four months.''
Australian government bonds fell for a second day. The yield on the two-year note rose 4 basis points, or 0.04 percentage point, to 6.79 percent. The price of the 7.5 percent security maturing in September 2009 fell 0.069, or A$0.69 per A$1,000 face amount, to 101.13.
Life on the streets is a maze of uncertainty and danger for Australia's army of homeless people."You're always worried someone's going to rob you, or beat you or set you on fire when you're asleep, which has happened on a few occasions," explains Snowy, who has been living rough for seven years.
Australia's Prime Minister Kevin Rudd has made homelessness a priority for the new Labor government. He has ordered his MPs to visit hostels for those without a home to gauge the scale of the problem."The turn away rate for people (at) homeless shelters is horrific," Mr Rudd told Australian television."Turn away rates of something like 80% or 90%. Now this is just wrong in a country as wealthy as ours."
Charities estimate there are more than 100,000 homeless people in Australia with indigenous people the hardest hit. This transient population includes families with small children and divorced women as well as those suffering addiction and mental illness.You can be functioning quite well and have a mental illness hit you in the same way that a truck would run you over.Some are without a place to stay for a few days, while others spend their lives looking for a safe place to sleep in doorways and parks.Many homeless Australians are 'lounge surfers', who rely on the hospitality of relatives and friends and are always on the move.Government agencies and charities are all working to ease this crisis.-No normal life-
Alice with her dog Buddy "-When you're on the street it's hard ... because you get really depressed and you just don't see any hope"-
The Wayside Chapel in Sydney's tough Kings Cross district is a haven for the city's street people. It offers food, hot showers, advice and above all respite from a society that often chooses to look the other way. "Within walking distance of Wayside there are between 300 and 600 people sleeping on the footpath every night," said Pastor Graham Long.There are various triggers to homelessness. Demons unleashed by drug, alcohol and gambling addictions are often responsible.Psychiatric issues play a big part too.Pastor Long told the BBC that the chaotic journey from a secure life with a job and a family to despair on the streets can be frighteningly easy. "You can be functioning quite well and have a mental illness hit you in the same way that a truck would run you over. It all happens in a blink of an eye."Alice has been homeless for five years.Sitting wearily outside the Wayside with her puppy, Buddy, she told me her story."Originally it started through drugs, drinking alcohol and then I became a heroin addict and all your money goes on heroin," she said. "You don't have money to pay rent and it's impossible to lead a normal life."My health has diminished a lot in the last five years since I've been on the streets. I'm on medication for schizophrenia and depression."When you're on the street it's hard to keep your medication going and do the right thing because you get really depressed and you just don't see any hope," she said grimly.
Despite her frustration with the authorities and a lack of social housing, there is a steely and determined edge to 28-year-old Alice. She has needed it. Women can be easy targets when night falls on the homeless."I've woken up with people trying to get into my sleeping bag, touching me," she said.But can Kevin Rudd help people like Alice?
Housing shortage.Charities say that affordable homes for low income families should be top of the new government's list.Mary Perkins from Shelter New South Wales says there simply is not enough public housing."It's no longer good enough to be doing it tough and to be poor you have to have other complex problems as well," she said.Many of Australia psychiatric institutions were closed decades ago. Many of the half-way houses and special needs facilities that were promised were never delivered.So state-owned flats often accommodate the mentally ill, while poorer families are pushed to the back of a very long queue.
The situation is equally daunting in the private market. House prices have soared across Australia. Rents have gone the same way, along with interest rates. The result is increased mortgage stress and crippling costs for some tenants."It's a pretty short road between an unaffordable housing arrangement and homelessness," said Mary Perkins.
Despite the gloom charity workers are optimistic that Kevin Rudd's promise of a more compassionate approach to government will help those without a roof over their heads. http://news.bbc.co.uk/2/hi/asia-pacific/7144303.stm
U.S. light crude for February delivery rose 20 cents to $90.94 a barrel. Oil was little changed just prior to the report's release.
EIA weekly report:
In its weekly inventory report, the Energy Information Administration said crude stocks fell by 7.6 million barrels last week. Analysts were looking for a drop of 1.5 million barrels, according to a Dow Jones poll.
Distillates, used to make heating oil and diesel fuel, fell by 2.1 million barrels while gasoline supplies rose by 3 million barrels. Analysts were looking for a 400,000 barrel decline in distillates supplies and a 700,000 barrel gain in gasoline stockpiles.
But an increase in stocks in Cushing, Okla., storage point for oil traded on the NYMEX and closely watched as an indicator of supply tightness, kept a lid on price gains.
One expert also said the big decline in crude stocks this week was due to fog-related shipping problems in the Houston area, which kept crude offshore in boats as opposed to at refineries.
"Most traders understand that it's not really a supply issue, it's a dislocation issue," said Andrew Lebow, a senior vice president at the commodities trading firm MF Global Inc. in New York.
Subprime Securities Market Began as `Group of 5' Over Chinese food
By Mark Pittman More Photos/Details
Dec. 17 (Bloomberg) -- Representatives of five of Wall Street's dominant investment banks gathered around a blonde wood conference table on a February night almost three years ago. Their talks over take-out Chinese food led to the perfect formula for a U.S. housing collapse.
The host was Greg Lippmann, then 36, a fast-talking Deutsche Bank AG trader who aspired to make mortgage securities as big a cash cow for Wall Street as the $12 trillion corporate credit market.
His allies included 34-year-old Rajiv Kamilla, a trader at Goldman Sachs Group Inc. with a background in nuclear physics, and 32-year-old Todd Kushman, who led a contingent from Bear Stearns Cos. Representatives from Citigroup Inc. and JPMorgan Chase & Co. were also invited. Almost 50 traders and lawyers showed up for the first meeting at Deutsche Bank's Wall Street office to help set the trading rules and design the new product.
``To tell you the truth, it's not very glamorous,'' Lippmann says. ``Just a bunch of guys eating Chinese discussing legal arcana.''
Those meetings of the ``group of five,'' as the traders called themselves, became a turning point in the history of Wall Street and the global economy.
The new standardized contracts they created would allow firms to protect themselves from the risks of subprime mortgages, enable speculators to bet against the U.S. housing market, and help meet demand from institutional investors for the high yields of loans to homeowners with poor credit.
Boom Turns Bust
The tools also magnified losses so much that a small number of defaulting subprime borrowers could devastate securities held by banks and pension funds globally, freeze corporate lending, and bring the world's credit markets to a standstill.
For a while, the subprime boom enriched investment bankers, lenders, brokers, investors, realtors and credit-rating companies. It allowed hundreds of thousands of Americans to buy homes they never believed they could afford.
It later became clear that these homeowners couldn't keep up with their payments. Defaults on subprime mortgages have so far produced about $80 billion in losses on securities backed by them. The market for the instruments is so opaque that many firms still aren't sure how much they've lost.
Chief executives at Citigroup, Merrill Lynch & Co. and UBS AG were replaced. To forestall a housing-led recession, the Federal Reserve has cut its benchmark rate three times since August and is injecting as much as $40 billion into the credit system to encourage banks to lend to each other.
`You Can't Wait'
This is the story of how Wall Street transmitted the practices of southern California's go-go lending industry and the inflated U.S. real estate market to the global financial system:
-- In Orange County, California, a mortgage lender named Daniel Sadek was among those who took notice of the increase in Wall Street's appetite for subprime loans. He turned the staff at his firm, Quick Loan Funding, into a subprime mortgage factory. ``You can't wait,'' said his ads, aimed at high-risk borrowers. ``We won't let you.''
-- In Dallas, a hedge-fund manager named Kyle Bass taught himself to use the contracts pioneered by Lippmann's group, then went looking for mortgage-backed securities to bet against. He found them in instruments based on loans Sadek made.
-- In New York, the ratings companies Standard & Poor's, Moody's Investors Service and Fitch Ratings put their stamp of approval on securities backed by loans to people who couldn't afford them. They used historical data to grade the securities and didn't adjust quickly enough for the widespread weakening of criteria used to qualify high-risk borrowers. Among the securities on which they bestowed investment-grade ratings: those backed by Sadek's loans.
`Robert Parker of Raw Fish'
Lippmann was a Wall Street renaissance man, with a strong appetite for sushi and an online restaurant guide so comprehensive one blogger labeled him ``the Robert Parker of raw fish.'' He opened the kitchen of the $2.3-million Manhattan loft he lived in then, complete with six burners, two grills and 20- foot island, to an Italian cooking class.
The goal of Lippmann's group on that winter evening in 2005: to design a new financial product that would standardize mortgage-backed securities, including those based on high-yield subprime loans, paving the way for their rapid growth. Of the firms participating that night, Lippmann's Deutsche Bank is based in Frankfurt, UBS in Zurich and the others in New York.
In February 2005, pension funds, banks and hedge funds owned fixed-income securities that were earning returns close to historic lows. AAA-rated securities based on home loans offered yields averaging a full percentage point higher than 10-year Treasuries at the time, according to Merrill.
Lure of Subprime
The trouble was that most creditworthy borrowers had already refinanced their houses at 2003's record-low mortgage rates. To meet demand for mortgage-backed securities, Wall Street had to find a new source of loans. Those still available mainly involved subprime borrowers, who paid higher rates because they were seen as credit risks.
While the group of five banks had packaged billions of dollars in subprime-based securities, in February 2005 none was among the leaders in the home-equity bond business. Countrywide Securities, RBS Greenwich Capital Markets, Lehman Brothers Holdings Inc., Credit Suisse Group and Morgan Stanley dominated the industry.
The banks wanted more mortgage-backed securities to sell to clients. Creating a standardized ``synthetic'' instrument, or derivative, would leverage small numbers of subprime mortgages into bigger securities. In this way, the firms could produce enough to meet global demand.
Building the Rocket
``We called up the guys we felt like we knew and could work with,'' Lippmann says.
Deutsche Bank sprang for the take-out food, and traders and lawyers sat down to design a new product and create what would soon become one of the hottest capital markets in the world.
The meetings were monthly, beginning at 5 p.m., after the trading day, and lasted more than three hours each.
``In the beginning, everybody brought their lawyer,'' says Lippmann.
Eventually, the Chinese food was replaced with deli fare because some participants complained it wasn't kosher.
The group sought to bring ``transparency,'' or openness, and ``liquidity,'' or trading volume sufficient to ensure ease of buying and selling, to the mortgage market.
The most important issues centered on how to account for the eccentricities of mortgage bonds, perhaps the most difficult-to-value securities on Wall Street. Unlike corporate bonds, home loans can be paid back at any time.
`Pay as You Go'
Traditionally, the best mortgage traders have been those who can read macro-economic trends to guess when homeowners will pre-pay their loans. Until recently, early repayment was perceived as the biggest risk faced by Wall Street's mortgage desks.
One concern with creating a standardized contract for mortgage-backed securities was that it was difficult to agree on a simple method of determining how market-changing events affected the values of the complicated, layered instruments.
To deal with the complexity, the group of five decided to install a ``pay-as-you-go'' system. When something happened affecting the cash flows underlying the security, the seller would have to make cash payments to the buyer immediately, and vice versa.
ISDA Steps In
As the group nailed down the details, the International Swaps and Derivatives Association, which sets trading terms for dealers, arranged conference calls including more of Wall Street.
To this point, some of the biggest mortgage underwriters -- Lehman Brothers, Merrill, Bank of America Corp. and Morgan Stanley -- hadn't been included in the negotiations. These firms heard about the talks and demanded to be let in.
On the conference calls, which included the market leaders, things got testy. One point in dispute was whether the contract should be traded on the basis of price or yield.
``Some of those points of detail were getting a little heated on the calls, and it was just thought it would be better to have a meeting face to face to move beyond those points,'' says Edward Murray, a London-based partner of the international law firm of Allen & Overy who was the chairman of the meeting and the outside counsel for ISDA. ``To be frank, the dealers that were not in the group of five were not that happy that there was a group of five.''
ISDA sought to resolve the differences by calling a sit- down meeting at its New York headquarters. Over coffee and pastries, Murray faced a crowd of dozens of traders and lawyers. Kamilla and Kushman acted as discussion leaders.
`Talk Was Very Firm'
``Rajiv would say something, and I'd be absolutely convinced about what he said,'' Murray says. ``And then Todd would say, `Well, I don't agree.' And I would be absolutely convinced about what Todd said. And then Rajiv would say `Well, the reason you're wrong is' and so on, et cetera.'' Kamilla and Kushman declined to discuss the negotiations.
Michael Edman, one of Morgan Stanley's representatives at the ISDA conference, was less chipper, Murray says.
``Arms folded, frown on his face, I'm not sure that's exactly true, but he wasn't in a happy-go-lucky mood,'' Murray says. ``There wasn't any shouting or anything, but the talk was very firm.'' Edman, who no longer works for Morgan Stanley, declined to comment.
By June, the differences were sorted out, the new contract was endorsed, and banks that hadn't been party to the group of five negotiations signed on. The banks would go on to create similar derivative contracts to trade securities backed by loans for commercial buildings and collateralized debt obligations, or CDOs, which are securities backed by various kinds of debt.
Creation of Index
Another necessary step was to create an index to represent the market and help hedge general market exposure. It was called the ABX-HE and would be similar to the indexes traders use for baskets of stocks. This, participants believed, would add to the market's liquidity, or depth, by attracting more trading.
By September 2005, some within Deutsche Bank were beginning to worry about defaults on subprime mortgages and how that might affect the securities based on them. A team of Deutsche Bank analysts that month warned of growing subprime market risks.
The ABX-HE index started trading on Jan. 19, 2006. At 8 a.m. on the first day, John Kane of Sorin Capital started phoning dealers. Kane, then 27, was a trader at Sorin, which runs hedge funds that invest in mortgages and other securities.
His auto mechanic, in describing the debt burden he was carrying to own a home, had planted the idea in Kane's mind that the housing market might be in trouble. Kane thought it through, ran an analysis on available data, and decided to wager against, or ``short,'' subprime. To do that, he turned to the portion of the ABX index dealing with the lowest investment-grade subprime securities.
Investors Go Short
The trouble was that quotes from brokers selling the ABX were already dropping, an indication that a number of investors wanted to do the same thing.
``All the other dealers were already scared'' and dropping their bids, Kane said while on a panel at a November industry conference. ``All but Goldman. So I bought from them.''
On its first day, the index traded more than $5 billion. The cost of wagering against the securities was rising, a sign that traders saw an increased chance of default. An early warning was visible to anyone who knew where to look.
The new derivatives were a hit among the group of five's customers -- the banks and other institutional investors that bought them to lock in high yields.
In the months to come, Deutsche Bank and at least one other member of the group of five, Goldman Sachs, began using subprime derivative contracts to bet the other way and guard against the possibility that subprime mortgages might default.
Lippmann Explains
For Lippmann's part, he says, it wasn't that he had ``any secret knowledge'' of the damaging events that were about to unfold in the U.S housing market. Rather, he says, he thought the risks of a downturn were significant enough to justify the millions of dollars it would cost to ``short,'' or wager against, subprime securities.
He says he told his bosses: ``If we're right, we're looking at a sixfold gain. And since a housing market slowdown is not as big a long shot as that, we should take the risk.''
Lippman disputes that the derivatives the group of five helped create -- which banks packaged into CDOs -- caused the subprime crisis.
``The problems in subprime are what they are and derivatives did not cause them,'' Lippmann says. ``Derivatives enabled more CDOs to be created and the stakes to be bigger. But the transparency made people realize the problem faster.''
Others see things differently. Derivatives, or ``synthetics,'' are ``like wearing a seatbelt that allows you to drive faster,'' says Rod Dubitsky, director of asset-backed research for Credit Suisse. ``The total dollar amount of losses, all these losses you're seeing, are from synthetics. No question, it changed the game dramatically.''
(TOMORROW: A California lender heeds Wall Street's call.)
